Financial success in your 20s: car, vacation, emergency fund

For people in their early 20s, top financial priorities are getting a vacation, building an emergency fund and owning a car, according to a recent survey by consumer research firm Hearts & Wallets.

All three can be a financial land mine or, done right, help build a solid financial future.

Vacations. Studies show people who take time off are more likely to land a raise and to avoid career burnout. But a restorative break from work — and a chance to enjoy friends and family — doesn't have to put you in debt.

In pre-COVID days, a survey by Expedia, found more than 80% of Gen Z considered "bucket list" destinations an imperative for their vacation. That helps explain why half of Gen Z-ers, in a separate survey by Credit Karma, went into debt for a vacation.

Your vacation mates are probably in the same financial situation as you. So, to the likely relief of everyone, propose a cheaper destination and start a conversation about how much fun you will have because you are all together. Play up the anxiety you will bypass because you aren't accumulating expensive credit card debt, nor are you putting that emergency fund years out of reach.

If you are dead-set on the glamour destination, then save up for it in advance. Take on an extra gig. Don't book the trip until you have saved at least 90% of what you expect to spend.

Emergency funds. You don't need to be 40 or 50 to understand that life isn't fair, predictable or cheap. Yet most of us fail to save money for contingencies.

If you are worried you won't have enough money at the end of the month, that's a signal you need to curb your spending. Rent a little farther away from your target neighborhood. Prune some streaming subscriptions. You know your spending weak spot (gaming? wardrobe?). Challenge yourself right now to stop before making that next purchase and to save those dollars for your emergency fund.

Cars. A car is likely your biggest purchase so far, and it's easy to be lured into making costly mistakes. While you may need a car, it is the worst investment: Every day, it loses value.

Two main goals: Buy, don't lease. Buy used, not new. The problem with leasing is that, even though the monthly payments today look so enticing, you never stop making monthly payments if you become a serial leaser. It's a choice that can cost you $100,000 in forgone savings over the coming decades.

And don't be the new-car chump. The average new-car loan payment eats up more than $560 a month, compared to $397 for the average used car loan, according to Experian Automotive. That's $160 a month toward a vacation or an emergency savings fund. And you will likely be able to finance the used car with a shorter-term loan, too. That means you will have no car payment at all much sooner.

If you have your heart set on new, you still might start with a used car right now. There is a major shake-up going on in the auto industry that is expected to bring the sticker price of electric cars in line with the sticker price for conventional cars, as early as 2023. When that happens, buying electric will definitely be the way to go.